On March 8, Altria (MO) announced that it completed its previously announced investment of ~$1.8 billion in Cronos Group (CRON) for a 45% stake in the Canadian cannabis company. Altria has the option to raise its stake 10% over the next four years with the excise of the warrant at 19 Canadian dollars per share.
According to the agreement, Altria has appointed four directors to Cronos Group’s seven-member board. In a written statement, Howard Willard, Altria’s chairman and CEO, said, “We’re excited to finalize our investment in Cronos Group and to support their talented team. Cronos Group is our exclusive partner in the emerging global cannabis category and represents an exciting new growth opportunity for Altria.”
Altria would use the equity method of accounting to account for its investment in Cronos Group. However, the company’s management has stated that it will report its share in Cronos Group with a lag of one quarter. Cronos Group’s results aren’t available for the concurrent quarter when Altria reports its quarterly results.
After falling 30.8% in 2018, Altria has started 2019 on a positive note. Altria’s stock price has increased 12.1% YTD (year-to-date) as of March 8. During the same period, Philip Morris International (PM) and Cronos Group have returned 31% and 109.2%, respectively. The Consumer Staples Select Sector SPDR ETF’s (XLP) stock price, which invests ~9.5% of its holdings in cigarettes and tobacco companies, has returned 5.8% YTD.